You can make a lot of money from rental properties, but don't make the mistake of thinking it will always be easy.
You'll face various challenges, but there are always things you can do to make things easier. Performing a rental market analysis is one such example. It will give you valuable insights that can help drive your investment decisions.
So what is a rental analysis, and how can it help you? Keep reading to find out.
What Is Rental Analysis?
In a competitive rental market, you need to have a good understanding of what's happening to be able to keep up. A rental analysis involves looking at market-level real estate and rental data in your area. By analyzing this data, you can see how other properties are performing, and determine how to make yours perform better.
There are different types of rental analysis, but they all typically involve looking at some common metrics such as:
- Rental demand
- Rental rates
- Property prices
- Cap rate
- Cash on cash return
By looking at this data in a specific area, you can get a much better idea of whether it's worth investing. If you already own real estate in the area you're looking at, this will make it easier to set a suitable rental rate.
Why Rental Analysis Is Important
The overall purpose of implementing rental analysis strategies is to help you make the best investment choices. It's also key in optimizing the bottom line of your investments.
The real estate market can serve as a market predictor. Through analysis, you can get a better idea of the potential income and cash flow of rental properties in the area.
It's always a good idea to know the potential profits that will come from a property before you invest in it. This will ensure you aren't met with any unwelcome surprises when it comes time to rent out your property. You can more easily compare different properties before making a decision so you can determine the best options.
If you charge too much for rent, you'll struggle to attract tenants. Conversely, if you charge too little, you won't be maximizing your profits. Through rental analysis, you can set an optimal rental rate so that you can keep your property occupied while making a good income.
Constructing a Rental Analysis
Conducting a rental analysis is a good idea, but it can also be a complicated process. There are six main steps to a typical rental market analysis.
- Define your rental objectives and select your research resources
- Collect comprehensive information on the subject property
- Assess the surrounding neighborhood
- Gather data on comparable properties
- Perform necessary calculations
- Analyze the price of properties and make informed decisions
Depending on the area you're analyzing, the properties you're looking at, and your investment goals, this process can vary to some degree.
Carrying Out a Rental Analysis
It's always a good idea to perform a rental analysis before making big investment decisions, but it isn't easy. It's usually best to work with a professional property management company that has the skills and experience required.
PMI Prime Home has been providing real estate management services in Orlando and the surrounding communities for nearly 20 years. You can get a free rental analysis from us today.